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Tax Credit/Deduction?

I have read the IRS website and am confused. I purchased a 2006 Civic Hybrid, but took delivery on Dec. 26, 2005. [I know I should have waited until Jan. 2, but that's history.]
My question: since I bought a 2006 vehicle will I get the 2006 or the 2005 tax advantage? The IRS website doesn't seem to mention the 2006 Civic.
Thanks

Tax Credit/Deduction?

If you're referring to the fact that the 2006 Civic Hybrid (oor any of the 2006 hybrids) are not listed as qualified for tax deduction, then just wait. The IRS usually updates the list later in the year, and should most likely include all of the new hybrids sold in 2006. You can always contact the IRS for explicit, written confirmation. Otherwise, just hold off on filing your taxes until they update their list of qualifying hybrids.

Tax Credit/Deduction?

"you will have to settle for the 2005 tax deduction"

For many folks, the 2005 tax deduction was BETTER than the new 3k tax credit.

I was advised that we would have had a larger relative reduction in taxable income if we had bought in 2005 because any car business deductions, and our AMT tax bracket, will negate all of the 2006 tax credit.

Whereas we could have applied the 2005 tax deduction.

So, check with your CPA or tax attorney.
[and feel free to tell me if your CPA says I received bad tax advice, with so many CPA's getting sued for malpractice and/or shut down by the IRS...]

Tax Credit/Deduction?

However. my CPA has explained it this way. If you purchased the vehicle BEFORE Jan. 01, 2006, you get the 2005 "TAX DEDUCTION", which is great if you usually gat a tax refund (increases your refund by lowering your taxable income)! If you purchased the vehicle AFTER Jan. 01, 2006, you get the TAX CREDIT, which is great if you usually have to PAY additional taxes and do not usually get a refund, as this is a credit and pays up to the amount set by the IRS for that Hybrid model. You can not use the tax credit to increase a refund, only to lower your tax payment. My CPA said the new TAX CREDIT system is better for people in higher income brackets, as they usually have to pay additional taxes and do not usually get refunds.

Tax Credit/Deduction?

To Clarify:

My CPA has said that if you are in a higher income bracket where you usually have tax due or get NO refund at filing time the new 2006 Hybrid Tax Credit is great! If you are in a tax bracket with many deductions where your "taxable" income provides you with a refund, the new 2006 Hybrid Tax Credit will not help you with anything, the old Tax Deductions was better for this group. So, my CPA says, (He is not a fan of the current administration) "it is another GW tax incentive to help the wealthy"!

Tax Credit/Deduction?

Todd, can you clarify? Getting a tax refund doesn't mean someone is in a higher income bracket or not in a higher income bracket - unless greater than $25k of taxable income is what you consider to be a higher income bracket. Getting a tax refund is dependent on how much taxes were withheld from your paycheck versus how much you owe. Same concept applies with tax due - most people will have tax due.

For MOST people, I have a hard time seeing how a $2k deduction is better than than a $3k tax credit. A $2k deduction results in a $200-$600 difference in tax owed (dependent on your tax rate) versus a $3k reduction in tax owed.

If anything, I see that a credit is worse for businesses that claim a total loss so that their tax owed for the year is, let's say, zero. Since their tax owed is zero, there's nothing for the credit to offset.

Again, the exception is for people where the taxable income is less than $25k (give or take) since the tax owed then would be less than the tax credit.

Tax Credit/Deduction?

Here is my CPA's information as I purchased a 2006 HCH on January 2, 2006.

If you (Qualified Model 2006 Hybrid Buyer) have multiple tax deductions (Mortgage Interest, Children, Home Office, etc.) that lowers your "taxable income" to the point that you get a refund without the addition of a "hybrid tax credit" then the new tax credit will not do anything for you. In other words, when you file you can not use your tax credit to "grow, enlarge or increase" your refund. The old tax deduction would have been better for this group as it would have lowered your "taxable income" and would have increased your return slightly. My CPA was a bit cloudy on my question of changing or lowering my tax payments throughout the year so I owe taxes at filing time to take advantage of the credit. However, he did say it might be a safe way to be sure to get the full tax credit of a 2006 Hybrid purchase.

Now, if you are an individual that usually owes more tax payment at filing time the tax credit will work up to the amount you owe, or up to the amount of the full tax credit for that model of hybrid.

Basically, how I understand it is this way. In order to take advantage of the "tax credit" you have to make enough money to show that your "taxable income" shows you owing taxes (whether they have been paid already or not), which would be around $50k or higher if you have Mortage Interest, Children, additional deductions, etc. However, this tax credit can not make it so you get a refund or increase your refund. Hence, my CPA saying it is a benefit for the higher income brackets as this group usually never gets a refund.

My CPA did add that they have not set all the rules as of yet and when the time comes it might be made to the advantage of all that purchased. I guess we just have to be patient. Good luck to us all!